What an 18-year old can teach Corporates about Strategy

Strategy

Wesfarmers chairman Michael Chaney, AO, tells a great story about a board visit to a Bunnings store. Eager for shopfront insights, a director asked an employee for his perspective. The 18-year-old rattled off Bunning’s strategy and its return-on-capital target.

Most companies only dream of such staff engagement in strategy. Could your youngest frontline employees explain the organisation’s strategy and its core goals, in broad terms? Do they feel any ownership of the strategy or its outcomes?

The Bunnings employee, one of then 60,000 (it’s now 220,000) in Wesfarmers, was as far removed from the strategy’s conception as possible in a large corporate. But he still felt ownership of the strategy, its execution and goals. Importantly, he knew the most important measure that would drive the company’s ability to deliver on its Purpose.

It is no surprise that Bunnings is one of Australia’s great retailers. Developing strategy at executive and board level, communicating it effectively to all employees, and diffusing ownership and delivery of the plan at all organisation levels is a rare capability.

In my experience, too many organisations struggle with strategy ownership. Using a “chain of command” approach, the CEO develops strategy and presents it for board approval. Directors engage on strategy after its development and feel less ownership of it.

Once approved, the CEO charges his executive troops with implementing parts of the strategy. The executives, each competing for capital for their division, focus on their bit of the plan rather than working as a cohesive unit and implementing a unified strategy.

Executives pass on to their managerial reports aspects of the strategy, which may or may not reach frontline staff. Worse, strategy communication flows only one way: from the organisation’s top to bottom.

There’s little scope for frontline employees to influence strategy, even though some are ideally placed to drive innovation because of their customer interactions. The result: valuable staff insights that could refine and strengthen strategy are lost.

It’s a bit like the military commander who stands on the hill directing his troops into action without explaining the battle plan or giving soldiers scope to respond to conditions. Then wonders why his army is slaughtered in the heat of battle.

Don’t get me wrong: I believe the CEO is the chief architect and owner of the organisation’s strategy and its implementation. Strategy must start at the top and flow down. It can be refined by frontline insights, but not formed by them.

Corporates are not start-ups. An emerging venture still discovering its customers and business model might develop from frontline strategy. Here, the CEO builds the right culture, capabilities, processes and people to develop and adapt strategy in real time.

Larger companies need a different approach. The strategy should be based on board and executive collaboration, allow for lower-risk product/service experimentation centred on customer needs, and be regularly tested and refined by frontline insights.

The board’s role in such a strategy is vital. It’s become fashionable in governance commentary to suggest boards should “own” the strategy. As the organisation’s custodian, the board must have a hands-on role in strategy, say proponents of this view.

I disagree. Part-time company directors, some of whom might not come from the organisation’s industry, can never formulate strategy and nor should they. They lack the time, data and market interactions to do so. Strategy is the executive team’s job.

High-performing boards excel in what I call “strategic governance”. They help coach, shape and refine strategy to improve it. They govern strategy implementation. They are involved, at a high level in strategy, at the start and along the way, not only at the end when they are called on approve or reject a strategy they are largely unfamiliar with. They respect management’s core role in strategy.

The board recognises its strength in strategy development is its diversity of director skills and experiences. Its directors look further out with strategy, across industry and markets, to see patterns and join the dots. This perspective helps executive teams that, naturally, are focused on their industry, shorter-term issues and are often consumed in detail.

Once approved, the CEO ensures his or her executive team owns strategy as one. Not executives owning a piece of it and implementing it in isolation – a problem I have seen too many times through my consulting work to leading corporates.

The CEO creates conditions for the executive team to work together on strategy and share inter-divisional insights. Conditions under which executives simultaneously compete and complement each other – and thus have greater ownership of strategy.

Effective strategy communication (a later topic I will cover) is central to the diffusion of strategy ownership throughout the organisation. A unified board and executive team communicate and reinforce the strategy at every chance. They lead by example, expecting their peers to do the same and sing from the same strategy hymn sheet.

Their leadership and communication engage staff on strategy. Every employee knows where the organisation is heading, why, and the intended outcomes. Staff embrace strategy and feel compelled to relay insights on what’s working and what is not.

The result: more diverse strategy ownership and a two-way flow of strategic insights from the organisation’s top to bottom, and back.

A five-year strategic plan, developed by the executive team, is tested and refined, ideally every quarter, based on organisation-wide insights. The plan then becomes a living, breathing document rather than a static blueprint for growth.

Effectively, the board and executive team develop the strategic core and encourage the rest of the organisation to shape the edges in response to real-time market conditions. It sounds simple, but too few companies achieve it.

The young employee who knew Bunnings’ performance targets was no one-off. It was the result of Wesfarmers’ expertise in formulating, communicating and implementing strategy – and encouraging every staff member to own a small piece of it.

So, I ask again: do your frontline staff understand the organisation’s broad strategy and have some ownership of it? If not, there’s a problem.